HP's Fumblers: You Should Know Their Names

That was the headline floating around last week. It's hard to disagree. Hewlett-Packard's (NYSE: HPQ) board is getting good at two things: tripping over their own incompetence and handing out dynastic pay packages.

It started last year when HP's board pushed out then-CEO Mark Hurd for allegedly abusing $20,000 worth of corporate expenses. For his misdeeds, Hurd was shown the door with a $35 million severance package, and quickly took up an executive position at rival Oracle (Nasdaq: ORCL) . Some claim the board's hands were tied with the severance package, and that it was contractually obligated to make the payout. Blarney. As Nell Minow of the Corporate Library pointed out, by letting Hurd resign, rather than firing him, the golden parachute was entirely voluntary.

This was board stupidity at its finest: Take a well-liked and talented CEO, make him resign for what looked like a minor issue, give him tens of millions of dollars, and hand him over to the competition where he can work tirelessly to erode HP's future. As Oracle CEO Larry Ellison said, "The HP board just made the worst personnel decision since the idiots on the [Apple (Nasdaq: AAPL) ] board fired Steve Jobs many years ago."

HP's board was just warming up. After the Hurd episode, HP's board set out to find a replacement. It eventually settled on Leo Apotheker, who had recently been ousted as head of European technology giant SAP (NYSE: SAP) after less than a year on the job. James Stewart in TheNew York Timesdescribes how botched the process of hiring Apotheker was:

[W]hen the search committee of four directors narrowed the candidates to three finalists, no one else on the board was willing to interview them. And when the committee finally chose Mr. Apotheker and again suggested that other directors meet him, no one did. Remarkably, when the 12-member board voted to name Mr. Apotheker as the successor ... most board members had never met Mr. Apotheker.

One of the board members who had never met Apotheker tried to explain: "I admit it was highly unusual. But we were just too exhausted from all the infighting." Try using that line on your boss sometime.

And then there's the weird twist of trust. HP ostensibly forced out Hurd because they couldn't trust him. Boards need their CEOs to be ethical bastions. But when they hired Apotheker -- a stranger -- the company he used to run, SAP, was involved in a nasty court battle with Oracle over intellectual property theft. As Joe Nocera of the Times explained, "It takes your breath away, really: the same board that viewed Mr. Hurd's minor expense account shenanigans as intolerable has chosen as its new C.E.O. someone involved -- however tangentially -- with the most serious business crime you can commit."

Investors universally panned Apotheker as a disappointment. HP's shares plunged nearly 50% on his watch, compared with double-digit gains from competitors Oracle and Dell (Nasdaq: DELL) . What little confidence he commanded vanished after announcing plans to spin off the PC division and purchase software company Autonomy at a vulgar price. On a conference call explaining the deal, Apotheker crowed about how fast Autonomy's revenue has been growing. When an analyst pointed out that most of that growth came from acquisitions -- not organic sales growth -- Apotheker responded, "I cannot comment on that specific thing." It was painful to listen to. Shares lost more than one-fifth of their value that day. It was clear he had to go.

Last week, HP's board showed Apotheker the door 11 months after he was named CEO. For his service of destroying billions of dollars worth of shareholder wealth, he was awarded a $25 million exit package, on top of millions in regular compensation.

Who's responsible for this disgrace? Apotheker has, rightly, become the face of HP's decline. To a lesser extent, HP's board has been blamed. They hired him, after all.

But when people talk about the board, it's treated as this mysterious, impersonal monolith. That's not the case, of course. Boards are made up of flesh-and-blood people with names and reputations.

At The Motley Fool's investment conference last week, Nell Minow of the Corporate Library challenged us to "name names." Corporate boards need to be held responsible for their actions. Step one in getting there is ensuring that shareholders know the names of the people taking those actions.

Some of these names should look familiar. Ken Thompson is the former CEO of Wachovia, who singlehandedly ran the bank into the ground. Pat Russo is the former CEO of Lucent, which became a poster child of shareholder wealth destruction. Meg Whitman is the former CEO of eBay (Nasdaq: EBAY) , and newly named HP CEO.

To be fair, several of these folks are new to HP's board, and weren't around during the Hurd ouster or the Apotheker hiring. But every one of them should be held accountable for the company's success going forward. You, as a shareholder, can make certain of that by exercising your shareholder rights and voting. If you're not happy with how the company is run, do something about it. This is easier than you might think.

Bob Woodward, who helped crack open the Watergate scandal, used to say that "it was accountability that Nixon feared." I have to think the same is true among corporate boards. Everyone knows HP's board is pathetic. What's sad is how little shareholders are willing to do about it.

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I couldn't agree more with your premise that we need to know who these clowns are. However, I do feel you stop short. Juxtaposing these names on a timeline of HP's gaffes would be quite valuable. Of course, do NOT stop there: corporate boards are incredibly incestrous; on what other boards do these idiots serve? I would like to divest myself of those equities!!

this highlights 2 problems our country faces, both caused by voter apathy. every time we re-elect a board member or politician, we are telling them we accept their actions, carry on with more of the same. we need to start voting against re-electing any board member, or politician.

Of the 13 current directors--Andreessen, Babbio, and Hammergren were on the search committee that ultimately replaced Hurd with Leo Apotheker.. I think we can reasonably question these members remaining there.

What's also noteworthy is that 2 of the directors who were replaced (Joel Z. Hyatt and John Joyce ) were in favor of keeping Hurd, while a third, Lucille S. Salhany, according to the James Stewart article regarding the hiring of Leo Apotheker 'wanted to slow down the process worrying aloud that “no one has ever met him." '

So it seems they got rid of the wrong directors in that it appears there were 3 directors that were kept that shouldn't have been (those on the CEO search committee that led to Apotheker's appointment), while there were 3 that were let go, who perhaps shouldn't have been (the two who were in favor of letting Hurd stay and one who wanted to take a closer look at Apotheker before hiring him)....

Hurd was "Well liked and respected" as much as Al Dunlap as long as the cost-cutting shtick kept working. A "strategy" of buying companies and gutting them does not require genius, only a profound lack of understanding of the tech business, and short sighted investors.

Hurd's inability to keep his pants zipped got him ousted before he could finish feeding the seed corn to Wall Street to keep their bellies full and burning the furniture to keep them warm.

I don't know if this is just me, but I always had a suspicion that board members and CEOs belong to some secret club that at initiation requires to swear on blood to squeeze as much pay and severance out of companies as humanly possible for your brothers and sisters. That is the only logical explanation I can come up with regarding executive pay packages.

This article points several very important points about the problems in too many American corporations today:

1) Boards that do not take their responsibilities seriously and allow top management to 'earn' huge amounts of money while making poor decisions. What ever happened to accountability at the top? (consider Boeing and the ongoing 787 debacle, for example)

2) Companies and financial wizards that think that $20,000 is a "minor" amount of money when CEOs misuse it but is considered significant when going to pay the people on the line actually producing the product being sold. Isn't $20,000 actually the same amount of money regardless? My goodness, too many American workers have to work a full year to earn that much money. No wonder they can't buy anything and get our economy going again.

3) Trustworthiness: Those that are trustworthy in small things are also trustworthy in large. If you can't trust someone to report honestly on their expense account when they are making huge amounts of money, why should you trust them with the rest of the company? Wouldn't you fire someone on the line that 'borrowed' $20,000 worth of product to share with their friends?

4) The undervaluing of the people that actually produce the product, not just make decisions, good or bad, from high above. Until we start to value our lower level employees as much as we value our CEOs and directors, we will have a difficult time restarting the economy.

Costco is an example of a company that values their employees and has succeeded significantly. I am sure there are a few others still out there, but we need Boards of Directors across our great country to take their responsibilities seriously.

i regularly vote against boards who schill themselves excess pay packages and have for years. sadly, few others seem willing to do the same -- or is it possible that boards have always kept the shareholders from directly communicating with each other lest they become uncontrollable?

sounds to me like a great new MF service (and one i would consider paying for): data on BoD's pay packages, overall company performance on different meaningful scales, inter-incestious boards, ability to see how many boards can be over-paid relative to the 'value' they actually bring to the business . . . . and on and one.

now that would be useful for investors as well as bringing a huge spotlight on their ill-doings.

I'm new to the Motley Fool and I think I'm not doing well. Back at the end of August, I purchased some HP and thought it might do well. After reading this article and seeing that my hp stocks have gone down by almost 13%, should I sell it now?

"We were too exhausted from the infighting" to do your (arguably most important) job? And you are being paid HOW MUCH?

One problem is that most boards have made it difficult or impossible to vote someone out. I worked for (and owned shares in) a once-great electronics company based in Schaumburg. As I recall, there were seven people on the BoD. and the board nominated seven candidates (exactly as many people as they had seats). Shareholder write-ins were not permitted, and the seven candidates who received the most votes won. So in other words, if each candidate owned stock and voted for themselves, they were elected EVEN IF EVERY OTHER SHAREHOLDER VOTED AGAINST THEM! There was no possibility that any candidate would NOT be elected.

I often voted against all of them just as a protest, not that it mattered. When I was laid off after 22 years, I received 20 weeks salary, or about twice what Hurd was accused of misusing. Wish I could have gotten even 1% of his severance package.

Oh, and I was not contractually guaranteed any severance at all. As an "at will" employee, (as most of us are these days), I could be laid off with nothing more than payment for the current day (plus any earned but untaken vacation). In order to get that severance, I had to sign an agreement not to sue for age discrimination and so on. Even with that, policy is one week's pay for every year worked, with a 20-week cap. I'm sure that $25M was MUCH more than one week's salary for Apotheker.